FOREX Fundamental analysis for EUR/USD on December 17, 2024
A strong economy invariably supports a strong currency — this time-tested principle continues to prove its relevance. The latest business activity data again highlights the superiority of the US economy over the Eurozone. While the aggregate PMI of the Euroblock countries is only approaching the critical mark of 50 points, the American indicator has soared to a maximum in almost three years. Such a difference in economic growth undermined the position of buyers of EUR/USD and completed another attempt to increase the main currency risk.
At the beginning of 2024, it was expected that US GDP would begin to slow down under the pressure of the most stringent monetary policy of the Federal Reserve System (Fed) in the last 40 years. Forecasts ranged from 1% growth to the likelihood of a recession. However, the actual figures turned out to be much higher. The US economy grew by 2.8% in the third quarter, and in the fourth quarter, according to forecasts by the Federal Reserve Bank of Atlanta, it may reach 3.3%. These results reinforce the gap with the Eurozone, whose prospects look much more modest.
As the economy grows, inflation tends to increase. Americans are spending more actively, anticipating a shortage of imported goods due to the tariffs imposed by Donald Trump. In Europe, the situation looks different. ECB President Christine Lagarde said that core inflation no longer poses a serious threat to price stabilization, and some members of the governing council, such as Isabelle Schnabel, argue that the CPI is under control. These factors allow the ECB to continue the cycle of rate cuts, which, according to some experts, may include up to five stages in 2025.
At the same time, the Fed plans to act more cautiously. September forecasts indicated four rate cuts in 2025, but the regulator's management was concerned that such steps could be perceived by the market as a signal of weakness in the American economy. In fact, the US economy is showing resilience: the labor market is strengthening, GDP is growing, and inflation has reached 2.7%. This suggests that in December some FOMC members may vote against further easing of monetary policy.
Thus, the gap in the approaches of the Fed and the ECB to monetary policy will grow. The Fed's more cautious policy, reinforced by the possible consequences of Trump's tariffs, reinforces the difference in rates between the US and the Eurozone. This creates conditions for further weakening of the euro. Against this background, the forecast of EUR/USD falling to 1.03 by March and achieving parity by June remains relevant. The recommendation is to sell.
EUR/USD Technical analysis
The short-term upward trend of EUR/USD remains. At the moment, the pair is trading in a downward correction. Yesterday, the bears tested the key support of the 1.0491 - 1.0478 trend. The zone was held by the buyers. Therefore, today it is advantageous to consider long positions from the support area with the first target at 1.0553 and the second at about 1.0629.
For EUR/USD sales, it is necessary to break through the minimum on December 13 and consolidate below. In this case, it will be possible to consider short positions with a target in the lower Target zone of 1.0353 - 1.0326.